This Just In: Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Everybody in the pool!
Well, a new year has dawned, but up on Wall Street they're still talking about last year's (or last week's) loves. A few days ago, as you probably heard, the post-IPO quiet period on General Motors (NYSE: GM) expired, and almost everybody who had a piece of the IPO took the cue to begin singing the company's praises. Well, this week you can scratch the word almost.

Bright and early Monday morning, Goldman Sachs and Deutsche Bank rolled out of bed, only to realize they were already late to the party. Bank of America and Citigroup had already endorsed GM, and there was no time to waste. So putting pen to paper, Goldman and Deutsche quickly dashed off "buy" recommendations of their own.

Goldman: "For the first time in several decades, [GM has] a cost and capital structure that matches the global revenue opportunity that lies before it." The company's ready to sell cars into a cyclical auto market revival in the U.S., and is already doing well selling into the secular bull market in the BRIC (Brazil, Russia, India, and China) countries.

And Deutsche: "GM's costs are now competitive, and its products are gaining increased traction in the market. ... most importantly, GM's core [North America] market is now solidly profitable and cash flow generative at the bottom of the demand cycle. We believe that this fact alone dramatically alters the risk/reward profile for investors."

Tell me something I don't know
I know. Big surprise. Basically, Goldman and Deutsche parrot the same company line their peers peddled last week -- almost to the decimal point. (Goldman's $43 price target on the stock is right in line with what most everybody else is saying GM stock should sell for.) So why are today's ratings news at all?

Because of the people making them. Now don't get me wrong -- like their fellow bankers last week, both Goldman and Deutsche are fine stock pickers generally, getting the majority of their recommendations right. But taking a closer look at their records, I've noticed that both these bankers share a similar weakness: They're lousy at picking automotive stocks. To show you what I mean, here's how Deutsche has fared in the industry:

*Deutsche recommended selling Ford once in the past four years, and buying Ford twice. It's 1 for 3 on its picks.

And here's Goldman's record:

Does Deutsche's accuracy in the industry concern you? How about Goldman's 33%? Personally, for all the reasons I laid out last week, I still think the positives outweigh the negatives at GM, and I believe the stock will indeed outperform the market. But for any pessimists out there, alarmed by the records of the analysts backing GM today, and looking for further reasons to worry, there are reasons.

For example, much of GM's success this year and beyond depends on its ability to dominate the new field of electric car manufacturing. General Electric (NYSE: GE) has already cast its lot with GM. With Tesla (Nasdaq: TSLA) sidelining its Roadster as it works to get its Model S ready for retail, GM has taken an early lead in the field (albeit, alongside Nissan.) But the competition's gaining fast. Ford will bring its Focus Electric to market this year. Mitsubishi and China's BYD won't be far behind, and even Toyota (NYSE: TM) will try to bring an electro-buggy to market in 2012.

Meanwhile, in the non-electric sphere, many analysts who praised GM last week also hedged their bets, explaining why 2011 in particular might not be a great year for a line-up-starved GM. Their hope is that the cost savings GM reaps from unloading its debts in bankruptcy will enable the company to invest more in product development, and bounce back in years to come.

Looking farther down the pike, we also know the same tax-loss carryforwards that will plump GM's profits over the next few years will eventually get used up. If GM can't earn sufficient profits to justify its valuation soon, its multiple could compress. Investors might decide GM deserves a P/E no higher than Ford's -- or even assign it a lower multiple.

Foolish takeaway
Like I said, while I note these concerns, they don't worry me enough to scare me away from the stock. To me, GM looks cheap at less than nine times 2011's earnings. Maybe even cheap enough to own. (But what do you think? Tell us below.)